Subros Limited May 2024 Concall Highlights: Robust Q4 Performance and Growth Prospects
Subros Limited, a leading automotive air conditioning and refrigeration components manufacturer in India, reported a strong Q4 FY24 performance, driven by a revival in the passenger vehicle (PV) industry and a pick-up in the commercial vehicle (CV) segment. The company witnessed an 11% year-on-year growth in revenue to ₹831.51 crore, with a notable improvement in profitability metrics like EBITDA and PAT. This positive performance followed a challenging period for the company in the past two years, suggesting a strong recovery and promising future outlook.
a. Financial Performance
Subros' Q4 FY24 revenue grew by 11% year-on-year to ₹831.51 crore, compared to ₹750 crore in the same period last year. Sequentially, the growth was also impressive. EBITDA for the quarter reached ₹80.86 crore, representing a 9.76% margin, up from ₹56.67 crore (7.59% margin) in the previous year's corresponding quarter. This translates to a 43% year-on-year improvement in EBITDA.
Profit before tax (PBT) for Q4 FY24 stood at ₹45.30 crore, a 5.47% margin, with a remarkable 70% year-on-year improvement. Profit after tax (PAT) for the quarter was ₹30.68 crore, equating to a 3.70% margin, demonstrating a 65% year-on-year improvement.
For FY24, the company achieved a revenue of ₹3,070 crore, up 9% year-on-year. EBITDA grew by 43% to ₹268 crore, while PBT surged by 98% to ₹140.7 crore and PAT jumped by 103% to ₹97.66 crore.
b. Operational Updates
The PV industry in India crossed the 4-million domestic sales mark for the first time in FY24, strengthening India's position as the third-largest PV market globally. Subros's market share within this segment improved by 3% during the year. The company also retained a significant market share in the truck segment (54%) and bus segment (17%).
The CV segment showed positive momentum due to economic revival and improved semiconductor supply. The CV bus market also witnessed a strong recovery with a 37% growth in production, and Subros achieved a 43% growth in this area.
The company also highlighted its focus on alternative fuel technologies, with CNG, hybrid, and electric vehicles contributing to 17% of its revenue, and expected this to increase to about 20% in the future.
c. Management Insights
Parmod Kumar Duggal, Whole-time Director and CEO of Subros, emphasized the company's resilience in the face of challenges and its focus on sustainable growth. He stated, "Profitability was a bit of a challenge in the last two years. Now the curve is on the upside, and we continue to sustain that." He also pointed out that the company is now debt-free, which will contribute to enhanced cash generation and future growth.
Duggal also highlighted the company's commitment to innovation and its expansion of the product portfolio to meet future technological transformations. He also noted the ongoing efforts to enhance technological capabilities and operational efficiency. He added, "We continue our effort in the future also to keep the double-digit growth of the Company, bettering all the challenges and opportunities which are visible as of today."
d. Strategic Initiatives and Future Plans
Subros is actively pursuing new business opportunities in the tractor and electric vehicle (EV) segments. It has already started production of tractor AC units for Mahindra & Mahindra and is exporting M-Star tractors to Japan and the US.
The company is also in the final stages of development for BEV projects with Mahindra & Mahindra and Maruti Suzuki, with SOPs expected in the coming quarters. Subros has secured approvals for introducing AC systems for N2 and N3 category trucks, with implementation starting in October 2025.
Duggal also underlined the company's focus on sustainability, with a target of achieving carbon neutrality by 2040. He said, "We are striving for this growth journey to take it to the next level. And also, we are committed for environmental and sustainability targets and Company has set a target for carbon neutrality by 2040."
e. Q&A Session Highlights
Margin Improvement: Management highlighted the impact of cost reduction initiatives and operational efficiencies in driving margin expansion. They also noted the positive impact of easing commodity prices.
New Product Margins: The management clarified that the margins on new products, including EV and N2/N3 category trucks, are expected to be comparable to or higher than existing product lines.
Home ACs: Management acknowledged the challenging market conditions for home ACs, citing price pressure and slow demand. They are adopting a cautious approach to this segment.
CAPEX and Growth: Management indicated that CAPEX investments are primarily focused on incremental capacity expansion rather than large greenfield projects. They expect to sustain growth with the existing CAPEX levels, but future investments in new technologies will be evaluated based on market potential and feasibility.
Localization: The management reaffirmed its commitment to increasing localization levels, aiming for less than 10% import content in the next three to four years.
EV Market: Management acknowledged the early stages of EV penetration in India and the evolving technological landscape. They emphasized the need to carefully evaluate technology investments to mitigate risks associated with rapid changes in the market. They also mentioned opportunities in supplying HVAC and other components for EV buses.
Outlook: The management expressed optimism about the company's ability to sustain the improved operational performance and drive double-digit revenue growth in the future. They also indicated a gradual return to historical EBITDA margins.
Conclusion
Subros demonstrated a strong Q4 FY24 performance, highlighting a significant turnaround from the previous two years. The recovery in the PV and CV segments, along with strategic initiatives in new growth areas like tractors and EVs, positions the company for a promising future. The company's focus on innovation, cost optimization, and localization, coupled with its commitment to sustainability, suggests a strong foundation for continued growth and value creation for stakeholders. While the road ahead may present challenges, Subros is well-positioned to navigate these and capitalize on the opportunities presented by the evolving automotive industry in India.
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